Janet Yellen Calls for Crypto Regulation in Congressional Testimony, Citing Financial System Risks

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Treasury Secretary Janet Yellen, in her forthcoming appearance before the House Financial Services Committee, is set to emphasize the potential dangers the cryptocurrency industry presents to financial stability, advocating for legislative action to regulate digital assets effectively.

Treasury Secretary Janet Yellen Urges Congress to Act on Crypto Regulation Amid Financial System Concerns

U.S. Treasury Secretary Janet Yellen is set to speak on the potential risks posed by the crypto industry to the financial system, including the instability of stablecoins, the danger of runs on crypto platforms, and the volatility of crypto-asset prices in her testimony before the House Financial Services Committee on Tuesday. Yellen’s prepared remarks, which were shared ahead of the session, spotlight the government’s increasing focus on digital assets as a significant area of concern.

Leading the Financial Stability Oversight Council (FSOC), a coalition of federal financial regulators tasked with ensuring the stability of the country’s financial system, Yellen will present the council’s latest annual report and express the need for legislative action to regulate the crypto sector.

Yellen remarks in her prepared statement:

The council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations.

This appearance comes at a time when the crypto industry continues to recover from high-profile setbacks, including the collapse of the FTX exchange, which Yellen had previously likened to the “Lehman moment” for crypto, referencing the 2008 financial crisis-triggering fall of Lehman Brothers.

Yellen’s statement emphasizes the need for Congress to pass legislation to address these concerns, particularly the regulation of stablecoins and the spot market for crypto-assets that are not classified as securities. She states, “Applicable rules and regulations should be enforced, and Congress should pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities.”

The FSOC’s 2023 annual report, released in December, had already pointed out the price volatility and interconnectedness within the crypto industry as key concerns. With Yellen’s testimony, the council’s stance on the urgent need for regulatory measures becomes clearer, signaling a concerted effort to mitigate the systemic risks associated with digital assets.

Lawmakers are working on several pieces of legislation, focusing not only on stablecoins but also on broader market structure issues and anti-money laundering measures.

Do you think Yellen is in favor of crypto regulation that will give regulatory clarity, but not stifle growth and innovation? Share your thoughts and opinions about this subject in the comments section below.